NEW FHA Loan Requirements 2025 - How much can you afford? - FHA Loan 2025

How much home can you purchase on $75,000 or $100,000 of income using an FHA loan in 2025? The past few years, I've gone through hundreds, if not thousands of loan scenarios comparing FHA versus conventional loans to help clients basically determine which is a better loan product for them. And in this video, I'm going to share the basics of an FHA loan, how you can calculate your monthly mortgage payments and help you figure out how much home you can purchase. And so I'm going to walk through two specific examples of $75,000 annual income and $100,000 annual income. First, it's a government backed loan. The FHA loan is more flexible and lenient than a conventional loan, and it allows for a higher debt to income ratio. And you can put as low as a three and a half percent down payment. In many situations, your interest rate is significantly lower on an FHA loan versus conventional. And here's some things to consider with an FHA loan. There's something called upfront mortgage insurance. No matter what, you're going to have this upfront mortgage insurance, which is 1.75% of the loan amount. Now, most people, when they get an FHA loan, they add that to the loan balance. So that is financed. Additionally, you're going to have monthly mortgage insurance. And so that's always going to be a part of your monthly payment. The only way that you wouldn't have this monthly mortgage insurance is if you put at least 10% down and then after 11 years, it automatically falls off. The other way to get rid of that mortgage insurance is to eventually refinance to a conventional loan. Another consideration of the FHA loan is that many real estate agents don't fully understand the FHA loan and the process. It's really important to work with experienced agents who have gone through multiple transactions when their clients have used an FHA loan. It's really not a scary thing if the agents know what they're doing. So some important notes before I dive into these calculations using the 75,000 annual income and the 100,000 annual income is that we are assuming good credit, so a 700 credit score. And we are just using the daily average interest rate. I'm not quoting any rates, just using the daily average. Rates are changing daily and it's based on multiple factors. Here's just a couple of them. How mortgage-backed securities are being traded, the current bond market, the current labor market, and inflation. There's a bunch of other more just listing those here. You might be wondering, how will you know what the average daily interest rate is? So you can use this website. It's called Mortgage News Daily. It'll just have the average daily rate. Or you can just Google and you can just fill in these boxes right here and it'll pop out a rate and you can just use that for your estimations. If you really want to know what your potential interest rate is at the time, reach out to a mortgage professional. Let's start with the basics here. We're going to look at income and debt to calculate our debt-to-income ratio. So we're going to start with the income calculation. Here's our example. A $75,000 annual income, that results in a $6,250 gross monthly income. Just keep in mind, the lender will look at gross income. If you're an employee, that just means that's the amount paid to you before any taxes or other deductions. This would just be a regular salary or a W-2 employee. If you are self-employed or a business owner, your calculations will be a little bit different. In these specific examples, we're just using W-2 employees. You might be wondering, why do lenders use the gross? And that's because everyone pays different taxes. Do keep in mind throughout this whole scenario, through this whole process, you need to know your own personal budget and how much you take home. That was a really simple calculation. To get your monthly gross income, you just take your annual income and divide it by 12. Now we're going to talk about the debts and the debt-to-income ratio. When we talk about the monthly debts, we're only talking about the monthly installment payments that would show up on a credit report. Maybe a car payment, student loan, personal loan, alimony. I do understand that you have other monthly bills, but from a lender perspective, they're not going to include those. Child care, maybe your groceries, those don't show up on your credit report. Those won't count in your debt-to-income ratio. Basically, your debt-to-income ratio is going to be your monthly gross income. It's basically going to be your monthly debts divided by your monthly gross income. That's going to give you a little percentage. There are two different ones. There's the front-end debt-to-income ratio and there's the back-end debt-to-income ratio. We'll talk about the front-end. That is just your housing expense. This will basically be your mortgage payment, which is principal and interest, your property taxes, your homeowner's insurance. If there's a HOA, the HOA. That will be divided by the gross monthly income. The back-end is actually the housing expense that we just went over, plus your other debts, like your car payment, your student loan, personal loans, divided by your monthly gross income. For FHA loans, the front-end goes up to 46.99% and the back-end goes up to 57%. Conventional allows a max of 50% for both. Let's actually calculate this. It's pretty straightforward here. For a $75,000 annual income, front-end, it's your $6,250 a month times 0.4699. You would be allowed $2,937 a month towards your housing payment, which is, once again, principal, interest, taxes, insurance, and HOA if there is one. The back-end is that $6,250 times 0.57. The max allowed towards all debts would be $3,562. The biggest takeaway from this is that the max allowed monthly payment might not actually be what you're comfortable with. Figure out what you're comfortable with, work backwards. I would say 80% of the time, people actually qualify for a higher payment than what they're comfortable with because we all know what our gross is is not what we take home and keep. Now, let's look at can you qualify for a $400,000 home on a $75,000 income. We're going to assume the following. We're putting 3.5% down on an FHA loan, so you'll need $14,000 for your down payment. This would leave you with a loan balance of $300,086. Remember, on the FHA loan, you're going to have the upfront mortgage insurance, but we're going to add that back to the loan balance. Your total loan amount would be $392,755. We're just assuming a 5.75% interest rate. That's just the average as of today. Your monthly principal and interest is $2,292. Let's take a look at the total housing payment because that's what we're going to need for our debt to income. The mortgage in this scenario is $2,292. Your property taxes, I'm using an average of 1.25%. This varies by state. Just keep in mind, property taxes range somewhere between 0.32% and 2.24% depending on your state and your county. 1.25% is kind of like a middle point. In this scenario, it's $417 a month. You're going to have mortgage insurance. It's going to be 0.55% of your loan amount. Monthly, it's $176. Then on average, your homeowner's insurance is going to be about $150. That comes out to a total monthly housing payment of $3,035. Now the fun part. Does this qualify for a $400,000 home? Based on a $75,000 income with no debt, this will not qualify for a $400,000 home. Let's walk through why. If we look at the front end debt to income ratio that we calculated earlier, the max allowed is $2,937. In our scenario, our monthly housing payment is $3,035. Let's see if they could qualify for a $380,000 home with no debt or if they even have $450 in monthly debts. The mortgage is $2,206. Property taxes, $417 a month. Homeowner's mortgage insurance, $176. Homeowner's insurance, $150. Here, your total housing payment is $2,927, which front end is less than the max allowed of $2,937. Then on the back end, with or without debt, you would still be okay. You would be under the max of $3,562. I actually created a spreadsheet that you can just do these calculations yourself. If you want a copy of the spreadsheet, go ahead. It's right here, a link to it. Then obviously, if you need help with that, you can just email me. I'm happy to help you walk through it and go through the calculations with you. I've gone through the first example. I do want to go through some common misconceptions. FHA loans are not just for first-time homebuyers. You can have an FHA loan on your first home. If you meet certain qualifications, like you're for work, family situations, you could actually use the FHA loan again on another home. In that situation, if you are keeping your first home and you have an FHA loan, you can actually rent it out and 75% of that rental income will be counted towards your income or the debt-to-income calculations. Just keep in mind, you do need one of the FHA approved reasons to get another FHA loan. Some of those are relocation for work, maybe you're going through a family situation like a divorce. Those are some of the examples of how you could use another FHA loan. Another thing to consider, and I think this is a really powerful tool, is FHA loans can be used to purchase up to four units. If you're buying a duplex, triplex, or quadplex, a multifamily, you can use an FHA loan as long as you're living in one of those units. We've covered $75,000 income and a $400,000 home purchase. We've gone over some of the misconceptions. Let's go over $100,000 income and a $500,000 home. Let's just real quick go through the income and debt calculations. Your income here is $8,333 a month. We're going to calculate the front end DTI number. That's $3,915. That's the max allowed payment for your housing expense. On the back end, we're looking at a max of $4,749 a month for your housing expense plus other debts. Let's walk through an actual $500,000 home purchase example using these assumptions. Three and a half percent down, so you'll need $17,500 for your down payment. You're going to have this base loan amount of $482,500. Don't forget, you're going to have that upfront mortgage insurance, 1.75%, which is $8,444. We're going to assume a 5.75% interest rate again, which comes to a monthly payment of $2,865 just for your mortgage. Of course, we can't just look at the mortgage payment. We need to look at the total housing payment. We got property taxes, 1.25%. We got the mortgage insurance again. We got the homeowner's insurance. For a total payment, $3,756 a month. In both scenarios, you could qualify for a $500,000 home. Obviously, you're just looking at the assumptions that I have. If you're really serious about this, reach out to a mortgage professional. We're going to take a look here at the front-end debt-to-income. $3,915 is the max allowed. The housing payment here is only $3,756, which is less than, so we're good on the front-end. Back-end DTI, $4,749 is the max allowed every month. That is greater than what they would have here, which would just be $4,206 a month. Obviously, if they qualify with the $450 a month of debt, they're going to qualify without the debt as well. Like I said, once again, super important. If you really want to go through this process, reach out to a mortgage professional. Hopefully, after watching this video, you have a good understanding of the FHA loan basics. You also now understand how to calculate your monthly payment so that you can also look at your purchasing power. Once again, FHA loan is a super powerful tool because you can just put 3.5% down. You don't need to save the 20% and it can get you into home sooner so you can start building equity sooner. Many people say, oh, you just want to push people buying homes, but the reality is this FHA loan, 3.5% down, has helped multiple clients of mine who bought homes two or three years ago and they've already built equity. They also saved a ton of money because the FHA loan had a much lower interest rate versus the conventional loan. If you don't have 760 or 780 perfect credit, you could be saving a few hundred dollars a month with the FHA loan. The final takeaways here, most important, make sure you know what works for you and your family in terms of that monthly payment. We all know that your take home is not the same as what you gross, so that's going to be on you and your family to figure out what's comfortable and what makes sense for you. Once again, the numbers here in my video are just examples. They're not quotes, but if you want help with your specific scenario, I'm going to drop my email right here. You can reach me directly there and as always, I hope my videos are providing you tons of value.